In the US healthcare system, the predominant non-government source of health “coverage” comes from the employer. While these strange bedfellows may have been put together by wage freezes during World War II and tax laws favoring employer purchasing, it would be expected that employers receive significant benefits for the billions spent annually on healthcare as the predominant portion of the benefits package.

So what do employers get out of the bargain? And where would we expect them to do to improve those returns? Lets take a look.

Reasons employers offer healthcare:

• Part of package to attract and retain talented employees
• Tax savings relative to salary
• Improve worker productivity
• Community goodwill

• Attract and retain employees

Employees have been trained to expect health benefits as a portion of their employment package. Therefore, companies seek to meet expectations to attract and retain key personnel.

Most employees, however, don’t understand the health benefits they receive. Therefore, rather than calculating total benefit, they tend to see the equation only from the costs they must shoulder– employee premiums, co-pays, and deductibles. Most employees do not understand how much an employer is spending on the plan– and some employers use this to cut benefits and others are not publicizing the value they are providing.

I would assume, that as employees get used to the concept of a low premium/ high deductible plan, that amount of money deposited in their HSA will immediately be comparable, especially where it meets or exceeds the deductible.

Don’t forget that health is but one part of a package that includes salary, vacation, sick days, retirement, vision, dental, EAP, childcare, etc.

• Tax Savings

Money spent on health is pre-tax for the employee, who potentially gains more in benefits than they would in equivalent salary. I believe the employer also avoids payroll taxes, which adds to the tax savings. However, this tax benefit is only desirable to the point that the employee feels that the health benefits outweigh the salary.

As health insurance costs have grown, healthy employees often feel short-changed, as their wages do not reflect what others of their skills make on the free market (especially at small companies or self-employed, where health benefits tend to be slim). Again, employees are often unaware of health benefit costs…and most of the benefit goes to those who are sick or have sick dependents. This may predispose a number of the healthiest employees to leave for better salaries– making benefit costs spiral for those who remain and are unable to leave due to dependence on employer-based insurance. This tends to be seen in industries with an aging workforce.

Similar to tax savings, from a workers perspective, is savings from pooled purchasing– although this is much more true for the older and the sick than the younger, healthier portion of the workforce.

• Improve productivity– clear opportunities from reduction in absenteeism

Productivity gains come from a few different factors: security, reduction in communicable disease, and reduction in injury/ illness on absenteeism. There is also literature around a condition called presenteeism, which we’ll discuss below.

Employer benefits from a feeling of security are somewhat unclear, as one might expect someone without employer-provided insurance to obtain insurance on their own if it was a major concern. That leaves us with those unable to obtain insurance in the individual market– who are much more likely to require significant spend from a pre-existing negative health condition within their family. Net benefit to the employer will vary by the expected medical spend, as a medical condition is likely to also impact the focus of the individual at work.

Reduction in communicable disease is also somewhat questionable, as it would be closely tied to the trends of employees to stay at home (connected to sick day policy) when they start feeling sick vs. when they are truly expressing their illness (communication of common colds/flus/airborne infections tends to happen early in the disease process). Antibiotics though can shorten the duration of an infectious disease and allow the individual to return to work.

Injury and illness can prevent people from coming into the office. Where skills are irreplaceable and timelines are tight, this can impact a significant amount of work and require expensive overtime or replacement workers. Significant illness and mortality can make companies hire new personnel and go through a transition period as they get up to speed. This category has clearly defined metrics around sick days and replacement hours from overtime/ temps/ replacements that are opportunities for additional investment by companies.

Presenteeism is when employees come to work in spite of illness and are less effective at their jobs. While this has an impact on their coworkers and department, the overall impact to the company is less clear. Where a department is a cost center, there may not be much of a financial impact, as coworkers will often cover for the individual. Where a department is a profit center, and the individual’s efforts drive additional revenue, there is potential for revenue gains from addressing this issue. However, most employers will not have sophisticated enough tools and a coordinated enough human resources system to document and show progress against benefits to presenteeism.

• Community goodwill

Part of the expectation in the still-paternalistic job market is that big companies will take care of their employees, including provision of health insurance. Companies like Wal Mart have been targeted by consumer groups and state legislatures for not providing insurance and having their employees directed to state Medicaid rolls or join the uninsured. However, providing additional insurance has not, as of yet, seemed to make a sustainable difference in increasing sales on its own. It does seem likely that the additional coverage could make a difference by making it less likely for people to be attracted by the overall compensation package, which may reduce the talent/skills available to such companies.

Opportunities to improve returns
It appears that employers are starting to believe that increasing investments in health insurance are not likely to improve performance in the jobs detailed above. Therefore, it would appear that innovations serving employers would focus on helping them to better allocate the spend already devoted to benefits/ health. Some options:

1. Changing benefit structures to allow employees to maximize what features they want (increase employee’s perceived benefit)
2. Publicizing features of health benefit (e.g., premiums paid by employers) to increase perceived employee/ prospective employee return from health benefit
3. Reducing premiums paid (e.g., moving to low premium/ high deductible plans) and putting savings into Health Savings Accounts (zero-su
   m transfer of money into pre-tax accounts to increase perceived employee benefit–especially where HSA provides additional coverage and employee likely to spend less than deposited in account)
4. Investing in disease management and wellness programs that pay for themselves through decreased absenteeism and reduced health insurance expenditures (especially for ASO companies)– type of program and extent of savings will be mitigated by expected employee turnover